Jonathan Holden | COO | SOLmate | mail me |
The “cashless revolution” spurred by the COVID-19 pandemic has proven durable and persistent.
PwC’s Payments 2025 & beyond publication, released in 2021, reported a 42% increase in global cashless payment volumes. The 2023 McKinsey Global Payments Report found that global cash usage continued to decline – by four percentage points year on year – and that the growth rate of electronic transactions was nearly triple that of the overall growth in payments revenue.
Cashless retail as anti-poor
Simply put, cashless transactions are taking a bigger and bigger slice of the payments pie every year.
More and more businesses are adopting a cashless-first policy. Interestingly, we’ve seen some pushback to this trend in South Africa, with some decrying cashless retail as ‘anti-poor’. This is worthy of serious study, but there is an alternative viewpoint: in a country where smartphone penetration was at 91% in 2019 (according to ICASA’s 2020 State of the ICT Sector report), and hence access to low-cost cashless payment systems such as digital wallets is widespread, the burden of cash could be considerably greater.
A 2017 Mastercard study found that as a result of direct ATM costs and indirect costs such as travel, time and theft, cash cost South African consumers R23 billion in 2015 – and that this cost was borne disproportionately by low-income earners.
South Africa has a mature, sophisticated financial sector, and, on paper, an admirable level of financial inclusion. A 2020 National Treasury report, titled An Inclusive Financial Sector for All, reported that “At least 91 per cent of South African adults have been formally included in its financial system, with only about 2.9 million still excluded.” But there is a difference between simply being able to access formal financial products, and being able to access financial products that support your inclusion in a system that works for you.
If you have a bank account but still need to travel to draw cash, if you are subject to high transaction costs, then baseline access to financial services is not the end of the road. Those financial services need to be designed in such a way that they are empowering, not onerous.
A good thing for financial inclusion
Innovative new financial products such as digital wallets could hold the key to a more empowering form of financial inclusion.
A digital wallet, or mobile wallet, provides a secure and convenient way to make payments, transfer money, and manage financial transactions. One of the key advantages of digital wallets is their affordability compared to traditional bank accounts. Maintaining a bank account can be prohibitively expensive for the unemployed or individuals living below the poverty line.
Digital wallets offer a cost-effective alternative, enabling underserved populations to access essential financial services, including payments, savings, and remittances.
In rural areas, where many residents rely on remittances from family members working in urban areas or abroad, digital wallets can simplify the process of receiving and sending money. By providing easier access to financial services, digital wallets help rural residents save, invest, and eventually start small businesses, which also benefit from access to financial products. This can contribute to local economic growth and poverty reduction.
According to the World Economic Forum, migrants sent home $800 billion in remittances in 2022. Making remittances more accessible to foreign nationals who come to South Africa to make a better life has a significant and wide-ranging impact on their wellbeing and that of their families.
A recent study by the World Bank has even found that the effects of cash transfers in curbing violence against women and children are overwhelmingly positive and comparable to stand-alone violence prevention interventions. Researchers hypothesise that this comes about as a result of increased women empowerment and social status when they are the recipients of transfers, strengthened support networks, and reduced conflict related to poverty and food insecurity.
In conclusion
Digital wallets also have the potential to empower small businesses through improved efficiency, expanded access to capital, and enhanced economic growth.
With low-to-no transaction costs, mobile money provides a way for small businesses, particularly those in underserved areas, to access formal financial services without overheads. It enables them to participate in the digital economy, establish financial identities, and gain access to savings, credit, and insurance services and reduce the risk associated with dealing in cash.
Digital wallets are a low-cost, convenient, safe and secure alternative to traditional banks, and are tailor-made for those previously excluded from traditional financial services.
Through the provision of accessible, easy-to-use products for underserved customers, we are dedicated to driving financial inclusion and improving the lives of individuals and businesses across the region. The growth in the use of these services across Africa has proven their value, and it’s a trend which we only expect to accelerate in the future.
